Explain degree of confidence and relationship with deviation
Explain degree of confidence and the relationship along with deviation.
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If you are working completely with normal distributions then going from one confidence level to another is just an issue of looking at a table of numbers for the standardized normal distribution as in table. As long as your time horizon is adequately short for the growth to be insignificant you can use the square-root rule to go from one time horizon to the other. The value at risk will scale with the square root of the time horizon; it assumes that the portfolio return is normally distributed too.
Table: Degree of confidence and the relationship along with deviation from the mean.
Degree of confidence Number of standard deviations from the mean
99% 2.326342 98% 2.053748 97% 1.88079 96% 1.750686 95% 1.644853 90% 1.281551
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